Steel Next month will see the massive extension eastwards of the European Union when ten nations, most of them former communist states, accede to EU membership. It will be a momentous event politically, and very significant for the steel sector as well.

The new entrants produced 23.5 million tonnes of steel last year. Most of this was made in four countries – Poland, Czech Republic, Slovakia and Hungary. The smaller steel plants of Latvia and Slovenia made up the remaining 1.1 million tonnes. The others – Cyprus, Estonia, Lithuania and Malta – produce no significant volumes.

The new member states will add about 15 percent to the enlarged EU’s total crude steel output. In terms of steel consumption, their contribution will be in about the same proportion. On the basis of 2003 figures, the enlargement will increase the size of the EU market by about 20 million tonnes, or 14.5 percent, to 159 million tonnes.

Most of the accession countries currently consume less steel per head of population than the EU-15. Leaving aside the Czech and Slovak republics whose traditional strength in heavy industry has always made them large end-users of steel, consumption per capita is generally quite low. Poland, the most populous of the new members, has a rate of about 200 kg per person per year: that is only about half of the EU-15 average of about 400 kg (crude steel equivalent). Hungary’s consumption is only marginally higher than Poland’s. In the Baltic States, the average is barely more than 100 kg.

This offers prospects for expansion of steel usage. GDP growth in the accession countries is projected to be 3.8 percent this year, accelerating to 4.2 percent in 2005: this is double the 2.0 percent forecast for the EU-15. Part of this advance will derive from the migration of industries from Western Europe to the new eastern member states, to take advantage of lower costs, notably labour. This process began some years ago and has been most intense in steel-consuming industries such as white goods and automobile manufacture. The shift is far from complete.

If historical precedent can be relied on, joining the EU will bring into play other factors that will support growth in steel demand. The phenomenon is most marked in southern Europe. In the period 1993-2002, steel consumption per head of population more than doubled in Spain, jumped by 90 percent in Portugal and rose by 72 percent in Greece. But the trend is not confined to southern Europe. Ireland’s steel usage per head soared by almost 150 percent during the same period. More recent EU joiners Austria, Finland and Sweden have also seen their utilisation increase.

Part of these rises in steel demand can be attributed to EU funds being invested to develop new and improved infrastructures such as roads, bridges, railways, and water and power distribution systems. Steel consumption could therefore accelerate once the new member countries begin to take advantage of the opportunities presented by EU membership. We would not be surprised to see double-digit percentage annual growth rates in some of the accession countries later this decade.

 Source: MEPS - European Steel Review